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Mayor Hosterman opened the hearing for public comments. John Yue, Zone 7 Finance Officer, said that Mr. Smith was provided noticed and did attend last year's meeting when retailers were presented with rate proposals and recommendations. He also noted that all board and budget meetings are open and agendized. Mayor Hosterman closed the hearing to public comments. Councilmember McGovern questioned and confirmed with Mr. Smith that Zone 7 water rates increased 54% from 2001 to 2009. She asked if the increase occurred at once or annually. Mr. Smith explained it was a series of annual increases adding up to 54 Councilmember McGovern asked if the increases were CPI based, and Mr. Smith said no. Zone 7 rates are based on the prepared budget forecasts. Councilmember McGovern noted that Zone 7 rates are projected to increase another 45% from 2010 to 2015, totaling 95% over 14 years. The public deserves to know what it is paying for and questioned what the nexus was for the increase. Mr. Smith said that is difficult to determine relative to someone else's prepared budget, but that he has and will continue to ask them the same thing. He conceded that certain costs do increase over time but it is difficult to accept when the City can provide the same sort of service without raising rates the same amount. He said he was not sure that a fair nexus could be made. He noted that DSRSD, with only 112 employees, has a larger human resources department than the City, which employs roughly 900 full- and part -time employees. Councilmember McGovern said that question should be asked when the City meets with Zone 7 next. Mr. Fialho said he would sift through the justification and make that information available the next time the item comes forward. Councilmember McGovern said that the public as ratepayers deserve that answer. Water is an enterprise fund, which means that funds collected go for paying not only for services but for maintaining the system. The City's enterprise fund cannot put funds away to cover those costs while absorbing these rate increases. She said she hopes Zone 7 would think carefully about its next rate increase and help the community to understand the reasons behind it. The current public perception is that if one conserves water, rates increase regardless, and she asked why conservation does not help to keep those costs down. Mr. Smith said conservation does help keep costs down, but agencies are currently struggling with the costs of operating very large systems; while conservation allows those systems to reduce in size, many agencies have not been as successful as Pleasanton in reducing overhead accordingly. He explained that rate structure is critical as well, because the less water consumers use, the less money comes in to cover the fixed costs. He said a fine balance exists between conservation and rates, and staff heard the Council's comments about not penalizing consumers for conserving and specifically structured this not to do so. Notwithstanding Councilmember McGovern's comments regarding the 54% increase, Councilmember Sullivan suggested that some of that may be related to the City's insistence that the water quality be improved. The new well de- mineralizer and the buildings and systems upgrade, which accomplished that, must factor into the cost at some point. He questioned whether the rate structure is progressive enough to truly promote conservation. He noted that the highest user's bill would increase by only about 60% while the same users PG &E bill would City Council Minutes Page 20 of 22 April 6, 2010